File by October 17 to avoid penalties
Tuesday, October 4th, 2011
Tick-tock. Time is almost up on that six-month extension you filed back in April to give yourself more time to complete your 2010 individual income tax return.
What happens if you fail to file your return by the extended due date? One consequence: Unless a disaster-relief exception applies or you have a valid reason, you may be charged penalties and interest.
For example, the penalty for filing your return after October 17, 2011, is 5% of the amount of your unpaid tax, per month, up to a maximum of 25%. After 60 days, a minimum penalty of the smaller of $135 or 100% of the tax due applies.
In addition, a late payment penalty of ½ of 1% of the tax due may apply for each month or part of a month that you fail to pay the tax due until you reach the full 25%. The two penalties interact and can be combined.
You’ll also have to pay interest on the tax due. During 2011, the rate on underpayment of tax was 3% in the first quarter, 4% in the second and third quarters, and back to 3% in the fourth quarter. The interest is compounded daily and can be charged on penalties.
Since the penalty and interest are based on unpaid tax, neither applies when your return shows zero tax due. Filing a return is still a good idea, however. Why? The general rule limiting the IRS to a three-year period for assessing tax begins when you file. No return means no triggering of the statute of limitations.
Generally, the IRS will not provide filing extensions beyond the October 17, 2011; however, victims of recent natural disasters have been given more time to file returns and pay taxes. This tax relief is part of the federal response to recent hurricanes on the East coast, wildfires in Texas, and severe storms and flooding in other parts of the country.
Give us a call if you think you may miss a deadline, or need updates on relief and areas covered. We can help keep penalties to a minimum.